Zheshang Auto Parts Industry Development of Private Enterprises
The Defect of Independent Brands Affects the Reform of National Interests in the Automotive Industry
Change is always painful, but prolonged pain is even worse. This is a fundamental rule of development.
"We have been in a joint venture with a multinational company for 20 years. In those two decades, none of the joint ventures have developed a Chinese brand, and over 90% of the market has been lost. The market is evolving, and so are the technologies being exchanged. Practice is the only criterion for testing truth. We should encourage the development of independent automotive brands," said an industry leader at the Zhejiang Taizhou International Convention and Exhibition Center during the China (Zhejiang) High-Level Forum on Independent Auto Brands, where enthusiasm for promoting national branding reached its peak.
"Initially, the purpose of the market-for-technology exchange was to gain access to advanced technology through joint ventures. However, we gave up the market, absorbed some technology, and eventually failed to develop our own brand. Today, the situation is under significant pressure," explained Jin Luzhong, a researcher from the China Science and Technology Promotion and Development Research Center. He emphasized that this issue directly affects national interests and must be addressed.
According to statistics, in 2004, China produced 5.04 million vehicles, with a 25% growth rate in the first four years of the 15th Five-Year Plan. The automobile industry's value exceeded 250 billion yuan, with private car ownership reaching 55% per thousand people—far below the international average of 103. China has become one of the world’s major car producers and consumers.
However, the downside of foreign direct entry is clear. While it boosted the industry, it also pushed domestic manufacturers into a difficult position. "In these 20 years, joint ventures have not developed a Chinese brand because they only gained usage rights, not ownership or technology in product development. They were limited to manufacturing and processing," Jin pointed out.
Moreover, the majority of profits from joint ventures have gone overseas. For example, Volkswagen's global production in 2003 was 5 million units, with 700,000 units made in China—accounting for 14% of total production—but 80% of the profits went to Germany. GM once joked that China got GDP, while they got the profits.
The automotive industry is a key sector that drives many related industries like steel and electronics. Yet, joint ventures struggle to fulfill this role. "Beijing Hyundai, for instance, discarded all original equipment from Beijing Auto and imported everything from South Korea. Only the wheels were made in China. How can such an industry drive others?" Jin asked.
In contrast, Geely’s chairman Li Shufu revealed that 80% of their spare parts come from domestic suppliers, showing the potential of independent brands. "The biggest problem is that joint ventures cannot act as independent industries," Jin added.
During the 11th Five-Year Plan, the government aims to strengthen R&D capabilities, promote independent brands, and focus on energy-efficient and new energy vehicles. Zhang Shulin of the China Association of Automobile Manufacturers stated that the state may invest heavily to support automakers and push for independent innovation.
Jin Luzhong believes that the time for reform should not be delayed. "If we wait too long, the problem will worsen. We should learn from companies like Geely and Chery," he said.
Taizhou, a city in Zhejiang, has emerged as a hub for independent auto brands. Despite being small, it has ambitious goals. "We are poor, but we have strong aspirations," said Li Shufu. Taizhou now hosts numerous auto parts manufacturers and is becoming a leading force in the industry.
By 2010, Zhejiang aims to create two to three large automotive groups with sales over 30 billion yuan and several smaller "giants." However, challenges remain, including competition from both domestic and international brands.
As the industry evolves, the path of independent development becomes more critical. With the right policies and determination, China’s auto industry can move beyond joint ventures and build a sustainable future.
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